Closing the gap: the role of government in enabling women to build better pensions

Blog posts

26 Jan 2023

Abbie Winton, Research Fellow
Claudia Plowden-Roberts, Research Fellow 
Jade Talbot, Research Officer 

Research has found that at retirement, men have almost three times as much in their pension pot compared to women. Successive governments have taken some action in recent years that will indirectly reduce the gender pension gap, including abolishing the net pay anomaly, introducing auto-enrolment and investing more in the mid-life MOT. However, this shortfall remains staggering. In our new report published in collaboration with Phoenix Group, we suggest that more concerted efforts are needed to improve pension equality, ensuring that women are supported during their working lives. As we put forward in this blog, a good standard of living at retirement can be achieved through changes to pension accessibility, improving the affordability of care, flexible working legislation and access to pensions advice and guidance.

In response to growing concerns about the gender pensions gap, IES published recommendations regarding what employers can do to help minimise the gap, yet as we outline in our new report there is also an immediate need for government to take decisive action and incite change to improve savings inequalities.

In 2022 the government committed to extending flexible working rights and maternity protections, and to support the Carer’s Leave Private Member’s Bill. Yet these initiatives fall short of both immediate and longer-term legislative changes that are needed. The current government must increase efforts to support women and businesses to close the pension gap. Future governments need to seize the opportunity to support women’s financial futures by committing policy action at this pivotal point in the electoral cycle.

What action should government take to close the gender pension gap?

Make workplace pensions accessible to those on low-pay

Income inequality, the cost-of-living crisis, and life events that reduce earnings all impact a woman’s saving capacity. Thus, there is a range of targeted interventions needed at different stages to ensure that those whose earnings fell due to these events, disproportionately women, do not have to pay a penalty for caring and can access financial support when needed. Women are disproportionately excluded from workplace schemes because they are more likely to have annual earnings below the threshold. By removing the lower limit, workplace schemes will become accessible to large numbers of previously excluded employees. Therefore, one of the most significant changes that government could make is by lowering the age threshold to 18 and removing the minimum earnings threshold for automatic enrolment (currently at £10,000).

We also recommend that the government make it a legal requirement for employers to provide information on how an individual's pension is impacted when changes to contracts or working arrangements are made. We recognise that small businesses will likely need support through the use of additional tools to help deliver this message (eg pensions dashboards/calculators, access to guidance via Pension Wise etc), thus these should be given more attention by policymakers. Additionally, to ensure that businesses are re-engaging employees in their workplace schemes regularly we recommend that the re-enrolment window is reduced from three years to one year.

Widen access to pension information, advice and guidance across the lifespan

Without a sufficient understanding of how pensions work and how different life events can impact them, individuals cannot make informed decisions about how they choose to save for the longer term. The current and future governments are best placed to ensure that the full range of stakeholders are positioned to engage in behaviours that will help close the gap, from education and support providers through to employers and individuals themselves. 

We recommend that the current government-funded Pension Wise service is made available to all, not just those aged over 50, and that the rollout of financial education within schools is extended. Our research found that many individuals wished they had more opportunities to engage with resources to help them understand their finances. To assist, government should consider establishing a new category of personalised pension guidance so that a larger proportion of the population can access reliable and tailored financial support. Further stakeholder engagement from government and FCA will identify who would be best placed to deliver a new category of guidance, with appropriate consumer protections.

Increase funding and access to care

Limited access to affordable child and social care is reducing the ability of women to engage in full-time employment, causing a detrimental impact on their ability to contribute to a pension. If care was made more accessible, women would have fewer constraints on their return to paid employment.

The Carer’s Leave Bill needs to be revisited to enable unpaid careers access to a minimum of five days of statutory paid leave, in addition to the proposed one-week unpaid leave. This should be taken as a first step towards re-valuing unpaid care work, yet it needs to be adopted against a backdrop of broader social care reform in order to have the necessary impact on the gender gap.

Regarding childcare, as an immediate temporary measure, the government should increase the value of the childcare vouchers from £55 a week to up to £300 a week to reflect the average weekly cost of nursery for a two-year-old. In the long term, government must ensure all childcare is affordable and costs a household no more than 5 per cent of their total household income. This should be pro-rated weekly to ensure that childcare accessed outside of the nursery/school day is also accessible to parents who work more than the free 15 or 30 hours (for children ages 3-4), have older children, and/or children who need care outside of school time.

Improve day-one rights to flexible working

Finally, the recently announced Flexible Working Bill failed to grant workers protections to manage good quality employment alongside caring responsibilities and health conditions. The current legislation reinforces a situation whereby ‘two-tier’ workplaces develop, where more accommodating employers approve flexible working requests and others do not. We recommend that workers are given the right to flexible working from the first day of employment and the number of exceptional circumstances in which requests can be used to reject requests should be reduced from eight to two. We also recommend that it should be a legal requirement for employers to formally record flexible work requests (including their decisions and the demographic characteristics of the employee making the request). 

If these broader legislative changes are made we can allow individuals to take control over their working and home lives, enabling them to save in a way that is both informed and achievable amidst competing household pressures. We recognise that the recommendations are wide-reaching, but we make them in the hope that this will encourage the cross-departmental government action that will be necessary if any meaningful improvement to the gender pension gap is to occur.